Heres a quick exercise for you. It will just take a minute at your computer. Do a search on the phrase lean cost cutting. Do a quick scan of the articles that are listed. Notice how closely lean and cost cutting are seen to be?

Now try lean manufacturing definition and check some of them out. Not so much about cost cutting per se, but almost all of them mention waste elimination. Id wager that most managers hear cost cutting when they see that term waste elimination.

My point is that lean methods and concepts have come to be seen primarily as cost-cutting tools. But this is wrong. An emphasis on cost reduction risks the success of the lean initiative. A focus on cost reduction as the primary objective of a lean program creates the following barriers to the success of the initiative:

  • Employees believe that cost cutting, in the long run, wont end with simply waste reduction. They come to believe, rightly or wrongly, that the ultimate goal is head count reduction. This makes it very difficult to get them committed to the programs success.
  • When managers look only for cost cutting, they overlook the other substantial benefits and gains from the implementation of lean. In fact, they can actually undermine the success of lean by keeping traditional approaches to cost reduction even as they implement lean methods. For example, managers might view set-up-time reductions simply as reductions in machine downtime rather than as improvements in the ability to respond to customer demands. Costs could actually go up if the new capacity is used to run even more product thats just put on warehouse shelves.
  • Cost accounting methods dont do a good job of capturing the benefits of lean tools. The performance of the shop floor can be much improved without showing sharp cuts in costs. Some important lean tools can actually increase costs in the short run. 5S initiatives will often increase repair and maintenance budget, but the benefits arent likely to show up in terms of reduced costs. Further, full and effective implementation of some lean tools can require significant investments. Reducing setup and changeover times can sometimes require modifications to tooling and equipment. Seeing immediate cost increases, managers get frustrated and go back to traditional manufacturing methods.

Many of you reading this likely are thinking: Whats wrong with playing up the cost reduction advantages of lean methods? After all, lean methods really do reduce the costs of doing business. And thats not a bad thing.